Basics of Mutual Funds NAV

Mutual Funds are one of the most growth-oriented financial tools available to customers. These funds not only ensure savings but also have high potential to grow your funds and offer high returns. Mutual funds are categorized into various types based on the nature of fund and their risk-return ratio.

More and more customers are opting for mutual funds considering the financial growth that they offer. Other regular investment tools are able to offer returns that are only enough to match the current inflation rate. On the other hand, mutual funds offer returns that are substantial enough and as such are able to cover the inflation effect as well as provide growth over and above that.

What is NAV in reference to mutual fund?

NAV is short form for Net Asset Value. NAV of a mutual funds represents the fund’s market value per share. This is the price at which the fund’s shares are bought by investors and sold to companies. NAV forms an important part of mutual fund basics for any investor, be it an amateur or a seasoned professional investor.

How is NAV of a fund calculated?

The Net Asset Value of any mutual funds is calculated by taking into account the total value of all securities and cash in a fund’s portfolio and then dividing it by the outstanding number of shares. NAV is computed every day at the end of the trading cycle. These computations are based on the closing market prices of the securities.

Importance of a mutual fund’s NAV

Here are some of the most important features and benefits of the Net Asset Value of any mutual fund.

• NAV helps calculate the price per unit of any share. For example an NAV of 60 million Dollars divided by 6 million shares outstanding will lead to a share price of $10.
• Net Asset Value is a term used mostly in context with open-ended mutual funds. This is because for open-ended funds, shares and interests are not traded between investors but are issued by the fund to investors depending upon their NAV. On the other hand, for close-ended funds, shares and interests are traded between investors and hence, the share and interests are priced at the final amount decided upon by the investors.
• NAVs point out the company’s current asset and liability holdings which makes it easier for investors to know the growth and risk prospects of any company.